MARKET WATCH: Crude price up 78% in 2009 and still climbing

Oil prices continued to climb with crude touching $80/bbl in intraday trading Dec. 31, 2009, on the New York market, ending the year up 78% for the front-month crude contract in what some describe as the biggest surge since 1999.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 4 -- Oil prices continued to climb with crude touching $80/bbl in intraday trading Dec. 31, 2009, on the New York market, ending the year up 78% for the front-month crude contract in what some describe as the biggest surge since 1999.

The price of natural gas fell, however, with reports of a weaker-than-expected draw of inventories despite forecasts of colder weather for much of the nation. But when the market reopened Jan. 4, analysts in the Houston office of Raymond James & Associates Inc. reported, “Natural gas prices are starting the New Year off with a bang (up 4.5%) after an arctic air mass infiltrated the central US over the weekend and brought record-breaking cold temperatures to many parts of the Midwest. Unseasonably cold temperatures are expected to continue across the Eastern US through the end of this week. Looking to next week, the National Weather Service's 8-14 day outlook is calling for below-normal temperatures to persist along the East Coast and in the south.”

They said, “The colder weather and a falling dollar have helped push crude above the $80/bbl mark for the first time since November. Additionally, heating oil reached its highest price in over 14 months as increased demand continued to place pressure on stock piles.”

The Energy Information Administration earlier reported the withdrawal of 124 bcf of gas from US underground storage in the week ended Dec. 25, 2009. That left working gas in storage at 3.276 tcf, up 379 bcf from the comparable period a year ago and 391 bcf above the 5-year average [OGJ Online, Dec. 31, 2009].

Raymond James analysts said, “Our 2010 oil forecast remains $80/bbl, which assumes modestly higher demand and falling non-OPEC supply. Since we expect these bullish trends to continue for several years, we are setting an initial 2011 forecast of $95/bbl. On the natural gas side, we are lowering our 2010 forecast, from $5.50/Mcf to $5/Mcf, given our view that $5/Mcf is a level at which US gas supply rises, LNG imports increase, and gas-to-coal demand switching takes place. Our initial 2011 forecast is also $5/Mcf. With a 2010 outlook for healthy oil prices, stagnant US gas prices, and rising rig counts, we believe that energy stocks are generally poised for additional gains in 2010. Overall, we are looking for energy indices to be up 10-20%, driven mainly by decent earnings growth.”

Meanwhile, the latest US government data showed initial jobless claims fell to a lower-than-expected level, while the US dollar weakened against most major rival currencies (OGJ Online, Dec. 31, 2009). As business resumed from the Christmas-New Year holidays, the Institute for Supply Management's index of manufacturing activity rose more than expected in November to 55.9 from 53.6. China's manufacturing industry was reported to have expanded at the fastest rate in 20 months; European manufacturing also showed improvement.

In other news, Federal Reserve Chairman Ben Bernanke refused over the weekend to rule out a future increase in interest rates to stop speculative investment bubbles. However, he said he prefers stronger regulation of the economy.

Energy prices
The February contract for benchmark US light, sweet crudes traded as high as $80/bbl intraday before closing at $79.36 bbl, up 8¢ Dec. 31, 2009, on the New York Mercantile Exchange, which was closed Jan. 1. The March contract lost 1¢ to $80.02/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 8¢ to $79.36/bbl. Heating oil for January delivery inched up 0.95¢ to $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.19¢ to $2.05/gal.

The February contract for natural gas fell 13.7¢ to $5.57/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 2.5¢ to $5.81/MMbtu.

In London, the February IPE contract for North Sea Brent lost 10¢ to $77.93/bbl. Gas oil for January was down 75¢ to $635.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 36¢ to $77.13/bbl on Dec. 31, 2009, and averaged $76.23/bbl for the week ended Jan. 1. Through 2009, OPEC’s basket price averaged $61.06/bbl compared with the 2008 average of $94.45/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

More in Economics & Markets